Posts Tagged ‘loans’

In today’s real estate world…financing is critical. It is often the difference between deal or no deal. So, how do you make it work? There are a number of factors to consider:

1. Is the buyer’s lender local and reputable?
2. Has the buyer been pre-APPROVED?
3. Is there a significant down payment?
4. Will the house appraise?

Without a yes answer to the above questions, your contract could be in jeopardy. It is always important to work with a lender who properly qualifies prospects, No ambiguous language allowed on that pre-approval letter (look for the “out” clauses”)! Make sure you actually talk to the lender and find out the specifics on the borrower. Is the buyer putting down some funds…money talks in this market and deals are done when the buyer has contributed to the bottom line. Finally, is the home priced right? In today’s market…we don’t want to be a part of the problem. We have to be problem solvers!

Just when you thought it was safe to jump back into the water…oh the dread.

I’m not really talking about sharks in our oceans – I am talking about the jumbo loan sharks and the debacle that is looming. Looks like the federal government is going to take a hard line on these jumbo loans and really cut off the people in the $500,000 to $1M loan category at the knees. Be prepared for a bucket load of strategic defaults with Sellers jumping overboard.

It is getting harder and harder to get any loan. But now Congress is working to get out of the high-end market (so called “jumbo” loans) and try the new “private banking” rescue of our homes for luxury properties. The result for many will be higher cost loans and fewer buyers for more expensive properties. To be clear, there are buyers and sellers in this price range but they can’t do it without a loan at this “mid-range” luxury price point.

In homes priced over one million, we see more cash buyers. But I call this mid-range group ($500K – $1M) as being in real estate purgatory. They are losing hope and they are losing hope fast.

Michael S. Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities. “There’s always going to be a line, and for the person just over it it’s always going to be an arbitrary line,” said Mr. Barr, who teaches at the University of Michigan Law School. “But there is no entitlement to living in a home that costs $750,000.”

The problem with this logic is that it will trickle down and affect the entire housing industry. This is the start of some difficult times in the lending market and I believe we may witness many people bailing out of these homes to become renters. Watch for an increase in strategic defaults. I’m already seeing it from the perspective that I have more tenants on hand than high-end buyers. This could be catastrophic.

I don’t see private banking coming to the rescue. Why? Because the federal government is still going to tightly control bank reserves which further decreases loan availability. I would love to see someone with some real economic credentials figure out how badly this new policy could affect our ENTIRE housing industry.

In short, this could blow a lot of people out of the water. Sending out an SOS…

As I was driving through a luxurious Orlando neighborhood recently, I noticed a number of homes that were obviously in foreclosure. The signs were everywhere including the overgrown lawns, the newspapers piled in the driveway and the general look of decay.

It dawned on me that without proper love and care – the earth has a way of reclaiming what it once lost. The house was covered in vines which were starting to smother the home. It was at once appalling and then again, mesmerizing. I guess the old adage “it’s not nice to fool “Mother Nature” really can come true. You can lay down all the bricks and mortar that you need to make a mansion or a modest home but left untended, Mother Nature is going to take it back and do so with a vengeance.

So goes the state of real estate. Real estate in the US is in ruins! No one is tending the real estate market and no banks, politicians or even news anchors seem to be alarmed. Banks have just disclosed that they wrote one-third (1/3) fewer loans the first quarter of this year than in the past. That is an ASTOUNDING fact. While is sounds wonderful to have a 4.45% interest rate, it is meaningless if no bank is giving out loans. It’s catastrophic. Right now we live in a world full of smoke and mirrors. It’s all fake advertising. It’s all for naught.

Banks are getting richer and bank CEO’s are reaping huge profits but not on real estate. Our country must stand up for a call to action for loans to be written to credit-worthy customers. We are in the weeds and we are going to be in a hole so deep it will take decade(s) to recovery.

As real estate goes – so goes the economy. As an example, I had a client with a two-year old foreclosure BUT $100,000 down payment on a $200,000 house and I could NOT get him a loan. Why? Because the lenders said his foreclosure had to be past three years. 50% down is almost unheard of and yet we could not get this buyer a loan.

PLEASE, please won’t someone get serious about the condition of our economy and realize that without loans and without buyers – we have no real estate? The effect is deep and sinks to the core of all business. No real estate builders, no real estate materials (bricks, shingles, asphalt, etc.), no handymen, no appliances, no furniture…I could go on and on. The lack of sales is affecting everyone and it is affecting you whether you understand this or not.

Let’s get back to business. Let’s sell some homes. Won’t someone make a stand?

There was a popular game show once that gave contestants the option to pick door number one, two or three to gamble on attaining a prize. Sometimes it was a car and sometimes it was a donkey. It was all about a game of chance and whether the contestant would win a grand prize or a booby prize.

Well…welcome to real estate in 2011. We have options but some are grand and some are not so grand. It all depends on what we are going to pick.

Through one door is the road to recovery with lenders writing loans, revamped credit scoring system and someone realizing that trying to negotiate settlement on loans is better than foreclosing on half of American homeowners?

Yet another door is this constant tease of do we foreclose or not because the court system has reacted in a crazy manner to the even more INSANE behavior of attorneys in the foreclosure process. We are witnessing – for the first time in recent history – the complete and absolute breakdown of our judicial system and the ethics of the legal profession. Insanity reigns.

Finally we have the banks. I could write a massive epistle on the sins of our lending institutions. From a real estate perspective, it seems no one knows what they are doing when it comes to banking. Even bankers are in a flux with the Mortgage Banking Association strategically defaulted on their own office building. No one in the news seems to discuss this very much. Oh the irony! In other words, the main organization that represents the banking industry walked away from their debt rather than repay their own bank loan.

I don’t know which door to pick because I don’t know if we have a sane person left running the (a) our country, (b) banks or (c) Wall Street. From my perspective, it all looks like a booby prize right now behind doors one, two or three. Won’t someone prove me wrong?

With real estate, we are taught to always talk in positive terms and believe me…I am positive. I’m positive that things are TOUGH right now and values are stable but nowhere near historic highs. I am positive that INTEREST RATES are low but no one can get a loan. I’m positive that we have a long time to heal in this economy with Congress seemingly lethargic and running scared. In the words of an old song “we need a hero”.

One of the things that Sellers in today’s market should consider is OWNER FINANCING. It’s not just a great opportunity to make good money it’s a FANTASTIC opportunity. Why rent your home waiting for the market to turn when you can sell and earn interest on the loan? As a seller, you have a secured asset and you have a plethora of worthy borrowers but you can’t get a fair market value for your home. Owner financing may solve your problem.

Seller financing works when:

Property has been on the market a long time with no buyers.

Property may too high priced for loans (jumbo loans are still a tough get)

Price is too high for current appraised values

No move up buyers in this market

Home needs updating or work.

OWNER financing works with:

Buyers may have some glitches on their credit and can’t get bank financing.

Buyers may be self-employed and have trouble getting financing.

Buyers may desire for many other reasons not to use bank financing.

A savvy seller realizes that there are good buyers out there who have lost their homes but have steady employment and could afford mortgage payments. They are ideal for owner financing and worth the risk.

What’s in it for the Seller? A great return on their investment.The seller sets the price, the interest rate and the payment plan. The Seller returns to a power position and reaps a great yield on interest since most of the payment during the first ten years of any loan goes to interest and not to principal.

The downside remains that the borrower may default but you simply foreclosure and the property is returned to the Seller. It’s not easy or fun but it’s all legal.

To the Seller who can afford to hold financing – take 10% down and hold a balloon mortgage for seven years at 7% and watch your money grow in this economy. It’s so simple that I can’t believe more Sellers aren’t doing it. Take a leap of faith and reap the rewards.

In a recent article, Inman News reported that foreclosed borrowers may get loans again. Inman reported that “Banks haven’t been very forthcoming on this issue. However, knowledgeable observers of the situation say that while it may take some time, the situation will right itself for most people.”

I have said it before – you cannot shut out a majority of homeowners who have been making loan payments for years but due to economic crisis and financial downturns have experienced a severe loss of income and ability to pay on their mortgage debts. So many individuals have found themselves in a position that they never believed possible and they are sincerely remorseful. Foreclosure for these borrowers was quite simply, a method of survival.

When the economy recovers – and it will, these borrowers will be the prime people to consider for new loans. Why? Because they have jobs, have been making timely rental payments and will (if smart) have saved a sufficient amount for a 20% down payment. They will be a good risk next time because they will be smarter about their ability to repay their debt.

I predict the banks will charge repentant borrowers a higher rate of interest (because they can) and because this particular borrower will be so pleased to have a loan that they will be willing to pay a higher interest rate for the opportunity to be a homeowner once again.

As Inman reports “The lender who figures out how to do more of this case-by-case stuff cost-effectively is going to end up ahead of the pack,” Riegler says.

You simply cannot pass up on this (formerly foreclosed) borrower of the future – there are simply TOO MANY of them and they will need a loan and a place to live. They are going to be the buyers of tomorrow. The dream of homeownership lives on…

Bank Lending Is Still Down. Should We Be

Worried?

By STEPHEN GANDEL

Move over, commercial lending and home foreclosures. The falling number of bank loans is emerging as the No. 1 economic concern of 2010. But while many expect the credit crunch to continue, the problem of bank loans might not be as bad as many people think.

“If the economic indicators were not recovering, then bank lending would be prime culprit,” says top Wall Street strategist Edward Yardeni. “The weak borrowing market just doesn’t seem to be stopping the economic turnaround.”

Nonetheless, many policymakers and analysts are worried. In late December, President Obama summoned the heads of the nation’s largest banks to the White House to urge them to make more loans to small and medium-sized businesses. Federal Reserve Chairman Ben Bernanke, too, has mentioned in recent speeches the continued credit crunch as an economic concern. (See how Americans are spending now.)

Indeed, the numbers are eye-catching. As of Dec. 23, which is the latest date for available data from the Federal Reserve, bank lending at nearly $6.7 trillion was down $100 billion from the month before. In the past year, the volume of loans outstanding by banks in the U.S. has fallen just over $500 billion. Bank loans have been trending down for a while. Worse, most analysts don’t see bank lending turning around anytime soon. Paul Miller of FBR Capital says a combination of banks wanting to take fewer risks and lower demand for credit from consumers and businesses will cause banks to continue to make fewer loans this year than last.

“Available credit for the U.S. is receding and that’s the economy’s real lifeblood,” says Christopher Whalen of research firm Institutional Risk Analytics. “This is a disaster.”

But while bank loans are falling, the well of credit for corporations is far from dry. In fact, the 22 largest banks in the Treasury’s Troubled Asset Relief Program issued or renewed $127 billion in business loans in November, roughly the same as five months ago. And at a recent $6.7 trillion, bank lending is at the same level it was in the end of 2007, when the economy was still expanding. That would be a problem if we had serious inflation. When asset prices rise and loan values don’t, that can signal economic stagnation. But at a time when many asset prices are falling, it makes sense that loan volumes would be falling as well. After all, the collateral is worth less. (See pictures of TIME’s Wall Street covers.)

What’s more, unlike during the height of the credit crunch, corporations are able to raise money from investors. On Tuesday alone, corporations sold $23.5 billion in bonds, which was the second most active day in debt sales by companies on record. In 2009, corporations issued $712 billion in investment-grade bonds, up from $646 billion in 2008.

Bank analyst John McDonald of Wall Street firm Bernstein Research says most people are focused on how the lack of loans will hurt bank earnings. Lending is after all how banks make money. But in the past year or so banks have had to sock more and more cash away into their reserves to account for their growing bad loans. That’s caused earnings to plummet. With loans falling, reserve ratios — the measure of reserves to loans — are growing. That means banks will be able to divert less of their operation profits into those rainy-day accounts, which should boost bottom lines.

Finally, unlike the stock market or consumer confidence, bank lending is a lagging indicator. Businesses look for loans to expand once the economy is growing and orders are coming in again. And banks, since they get hurt so badly in recessions, particularly this one, become very risk-adverse at the beginning of economic cycles. “In the initial stages of a recovery banks are never handing out cash,” says Lakshman Achuthan, who is a managing director at Economic Cycle Research Institute. “It never happens that way, and we have had plenty of recoveries.”